Saturday, July 28, 2012

The Corn Shortage, Food Prices, Drought and Government Knows Best versus "Greedy" Businessmen

We're having a drought, as everybody knows.

That means a shortage of corn, as everybody knows.

That means higher prices for corn, as everybody knows.

That means higher prices for meat, milk and related food items as well, as everybody knows.

Everybody knows all that, even our government knows best elitist politicians.

The Ethanol Mandate Is Worse Than The Drought is an editorial by the CEO of Smithfield Foods and has this to say:

"This has been a cruel season for America's agricultural economy. It was partly unavoidable, as our nation's farmers are being devastated by this summer's brutal and worsening drought. The farm economy has withered along with the crops, and the American consumer, once again, will pay for it with higher food prices.

One of the hardest-hit commodities, corn, plays a critical role in our food chain. This year's crop yield could be the worst in 15 years, and corn prices have already hit record high levels.

But aggravating the problem and adding to the crisis is the U.S. government's Renewable Fuel Standard (RFS), which requires that a certain volume of ethanol (15.2 billion gallons in 2012, mainly derived from corn) be blended into gasoline. This is an arbitrary figure, set irrespective of market supplies, demands or price. It applies to corn that's desperately needed for livestock feed and food for consumers.

The RFS has diverted so much corn as a questionable substitute for gasoline that in the face of this drought-depleted harvest, major food-producing companies such as Smithfield are being forced to seek alternative markets for grain to meet the demands of their livestock and at more affordable prices. Ironically, if the ethanol mandate did not exist, even this year's drought-depleted corn crop would have been more than enough to meet the requirements for livestock feed and food production at decent prices.

To give you some idea of the magnitude of the problem, look at Smithfield. We're the world's largest pork producer. We purchase roughly 128 million bushels of corn and corn equivalents a year from U.S. farmers to feed our 16 million pigs on farms across 12 states. This makes us one of the largest consumers of corn in the country. In addition, we contract with about 2,135 U.S. hog producers.

This year, the double whammy of a drought that's ravaging crops and ethanol demand has pushed corn prices to what are now record-high levels of over $8 per bushel, a quadrupling of prices in less than a decade. This has compelled food producers like Smithfield to find ways to control skyrocketing feed costs. For the first time in memory, corn is cheaper when it's delivered to the U.S. from abroad than if it's purchased from domestic suppliers. Smithfield was forced to take the unfortunate but absolutely necessary step of buying corn from Brazil—spending money that under normal circumstances would have gone to U.S. farmers.

This is what happens when the corn market, which already has to count on the whims of Mother Nature and is governed by the laws of supply and demand, is victimized by the whims of Washington and the unintended consequences of the diversion of food to fuel.

Ethanol now consumes more corn than animal agriculture does. According to a study recently released by the Center for Global Food Issues, ethanol production currently uses more than 40% of the U.S. annual corn supply, representing a 300% increase from 2005 to 2011. The resulting impact on corn prices is stunning: Per-bushel prices jumped to a record high last week of $8.24 from $2 in 2005, the year the ethanol mandate was put in place. . . .

The current corn-price crisis demands that lawmakers and regulators immediately consider how to amend the RFS to help ease the pressure it is placing on the supply of corn for food, and to help reduce the cost to consumers.

In the short term, the Environmental Protection Agency should grant a nationwide waiver to the RFS. That will have an immediate positive impact on the corn market by removing the demand created by the mandate.

Furthermore, there is a legislative proposal backed by a bipartisan group of members of the House of Representatives that would tie the RFS percentage to free-market supply and demand. Congress should pass that immediately. . . .

The nation's corn crop is in a state of crisis. We can't control drought. But we can and must address the impact of politics on corn supplies and prices by taking steps to ease the pressure and help prevent food inflation: We can waive the ethanol mandate now, and then work on a longer-term plan."

My Take

Government knows best self serving "public servants" like to align against and then malign "greedy" business leaders and free markets. They do this under the false claim of "serving" the public.

In reality, it's often a case of private special interests and political governing factions lining up together to oppose the best interests of taxpayers and consumers.

We the People are being ill served by all this, of course. So what else is new?

How long will we be willing to take it? When will we get mad as hell and do something about it?

I hope soon. Real soon.

Thanks. Bob.

No comments:

Post a Comment